Financial crisis: What should I do with my bank shares?

Britain's banks have fallen in value, leaving many investors wondering whether
they should sell, hold – or even buy bank shares. Here are the views of
stockbrokers, fund managers and financial advisers

Justin Urquhart Stewart of Seven Investment Management

"It is pointless to come out of banking shares now, that would be capitulating when the market is at its most fearful. The weaker banks have gone, those that remain should be supported by government. There may be further mergers but this could translate into shareholder value. We do not see that any of these shares will be worthless.

"If you think it will be banking Armageddon, and we will not have any privately owned banks at all, then I suggest you find a hermit's cave to dwell in. But if you see the economy in a better state five years from now, then the fortunes of the banks should improve. Stay with them; it might be frightening in the short term, but it seems futile to get out at what could be the lowest point."

Bill Mott, Psigma Investment Management

"I own six UK banks - HSBC, Royal Bank of Scotland, Barclays, HBOS, Lloyds TSB and Standard Chartered. It is painful and if there is a recapitalisation of some of the banks there will be a dilution of equity. But I feel this is the capitulation we need to reach the floor. It will lead to a new world of banking – one with high margins. It will be like going back to the 1970s, when people queued to see their bank manager to get a mortgage. Banking is going to be dramatically different.

"I am not buying banking shares at the moment. We are going to have to muddle through this, but in five years' time I believe we will be saying 'wow, those banking shares were cheap'. It is not Armageddon, but it is painful."

Juliet Schooling, head of research, Chelsea Financial Services

"In general, private shareholders tend to be buy-and-hold investors, whereas the big institutions have been dumping shares and short-selling, in some cases sending share prices down further. Private investors have been left holding the can. And now with the latest in the series of "Black Mondays" what should shareholders do in the face of the plummeting value of stocks?

"There are two main factors to examine: firstly, an investor's investment horizon; and secondly and the health of the company in which that investor holds shares.

"If the investor is maintaining a long-term strategy then they should persevere in the majority of cases, as I firmly believe that most of these shares will turn around given time - I am in little doubt that with hindsight this period will look like a very attractive point-of-entry. However, where the investment horizon is shorter and the investor is looking to use this equity to fund an acquisition in the near future they may consider selling now as there is nothing to say that market volatility will not continue for some time - shaving further value off their investment.

"But even for our long-term investors there are some real problem shares - particularly the large financial companies such as banks that may need government assistance. In the event of a part bailout, the government will take a stake in that organisation, hence diluting an investor's shareholding and in the process forcing down the value of that shareholder's investment.

"This scenario is a double-edged sword: on one hand the government intervention might stabilise the company in the long term, pushing the value up of those diluted shares; however, intervention is sometimes merely a palliative response and those diluted shares may continue to lose value. It really depends on the fundamentals of that company and their long-term outlook - and each company should be assessed on a case-by-case basis if an investor is looking to jump ship.

"In the event of a full bail-out the shares will be almost worthless, as we have seen in the case of Northern Rock; if the investor senses the Government will nationalise a company in which he or she holds shares and wants to realise any value from their holding they should get out rapidly - even if it means exiting at a fraction of their initial investment."

Paul Kavanagh, chairman of Killik Capital

"My views haven't changed. While RBS has raised money during the round of the capital-raising exercises, the extent of the problems at Fortis, its partner in the ABN Amro takeover, invites the question as to whether it will be enough. A weak hold.

HSBC is the safe haven of all the banks and its rating reflects that. Household, its subprime subsidiary, continues to face significant challenges, but HSBC's global spread and well-capitalised balance sheet make it a core hold.

With regard to Lloyds TSB, the potential purchase of HBOS has increased the risk profile of the group by significantly upping the exposure to the domestic property market. A hold, but the risks have moved away from the previous 'safe-haven' status."

Chris White, UK fund manager and banking analyst at Threadneedle

"We are still underweight in the banking sector and our mantra remains to buy the strong banks and to sell the weak banks. We own HSBC, Standard Chartered and Lloyds as we think that they are the strongest capitalised banks in the UK. There are signs that the market is discriminating between winners and losers and European banks such as Santander, BNP, BBVA and Credit Suisse are starting to outperform their peers, while losers go to the wall."

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.